Fong Law Group

Non-Borrowing Spouses of Reverse Mortgage Holders Receive Expanded Protections

The federal government has expanded access to protections for spouses of reverse mortgage holders who are not named in the loan document, allowing more such spouses the ability to stay in their home if the borrowing spouse dies or moves to a care facility. 

A reverse mortgage allows homeowners to use the equity in their home to take out a loan, but borrowers must be 62 years or older to qualify for this type of mortgage. Up until 2014, if one spouse was under age 62, the younger spouse had to be left off the loan in order for the couple to qualify for a reverse mortgage. But couples often did this without realizing the potentially catastrophic implications. If only one spouse's name was on the mortgage and that spouse died, the surviving spouse would be required to either repay the loan in full or face eviction. 

In 2014, the Department of Housing and Urban Development developed a rule that better protected at least some surviving spouses. Under the rule, if a couple with one spouse under age 62 wants to take out a reverse mortgage, they may list the underage spouse as a “non-borrowing spouse.” If the older spouse dies, the non-borrowing spouse may remain in the home, provided that the surviving spouse establishes within 90 days that he or she has a legal right to stay in the home (this could, for example, be an ownership document, a lease, or a court order). The surviving spouse also must continue to meet the other requirements of a reverse mortgage holder, such as paying property taxes and insurance premiums.

While this rule was beneficial to many non-borrowing spouses, it left some out: It applied only to loans taken out after the law became effective in 2014 and did not cover spouses of borrowers who had to leave the home due to medical reasons. In May 2021, the Federal Housing Authority issued a new rule that addresses these issues and expands the protection to the following spouses: 

• All non-borrowing spouses, not just ones whose loans began after 2014 
• Non-borrowing spouses of borrowers who had to move to a health care facility for more than 12 consecutive months 
• Spouses who were in a committed relationship with the borrower at the time of the loan, but were prevented from marrying the borrower due to their genders, provided they eventually married before the borrower’s death

The new rule also eliminates the requirement that non-borrowing spouses demonstrate that he or she has a marketable title or the legal right to remain in the home. 

This rule still does not cover spouses who were not married to the borrower at the time of the loan (except in the case of same-sex marriages that were prohibited at the time). Additionally, the non-borrowing surviving spouse still cannot access the remaining loan balance. 

To read the new rule, click here.

Reverse Mortgages: A Way to Remain at Home Longer

Under our "system" of paying for long-term care, you may be able to qualify for Medicaid to pay for nursing home care, but in most states there's little public assistance for home care. Most people want to stay at home as long as possible, but few can afford the high cost of home care for very long. One solution is to tap into the equity built up in your home.

If you own a home and are at least 62 years old, you may be able to quickly get money to pay for long-term care (or anything else) by taking out a reverse mortgage. Reverse mortgages, financial arrangements designed specifically for older homeowners, are a way of borrowing that transforms the equity in a home into liquid cash without having to either move or make regular loan repayments. They permit house-rich but cash-poor elders to use their housing equity to, for example, pay for home care while they remain in the home, or for nursing home care later on. The loans do not have to be repaid until the last surviving borrower dies, sells the home or permanently moves out. (Warning: If both spouses are not on the reverse mortgage deed and the spouse who is on the deed dies first, the surviving spouse would be required to repay the mortgage loan in full or face eviction.)

In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. The lower the interest rate and the older the borrower, the more that can be borrowed. To find out how much you can get for your house, use a reverse mortgage loan calculator.

Homeowners can get the money in one of three ways (or in any combination of the three): in a lump sum, as a line of credit that can be drawn on at the borrower's option, or in a series of regular payments, called a "reverse annuity mortgage." The most popular choice is the line of credit because it allows a borrower to decide when he or she needs the money and how much. Moreover, no interest is charged on the untapped balance of the loan. 

Although it is often assumed that an elderly person would want to use the funds from a reverse mortgage loan for health care, there are no restrictions--the funds can be used in any way. For instance, the loan could be used to pay back taxes, for house repairs, or to retrofit a home to make it handicapped-accessible.

Borrowers who take out a reverse mortgage still own their home. What is owed to the lender -- and usually paid by the borrower's estate -- is the money ultimately received over the course of the loan, plus interest. In addition, the repayment amount cannot exceed the value of the borrower's home at the time the loan is repaid. All borrowers must be at least 62 years of age to qualify for most reverse mortgages. In addition, a reverse mortgage cannot be taken out if there is prior debt against the home. Thus, either the old mortgage must be paid off before taking out a reverse mortgage or some of the proceeds from the reverse mortgage used to retire the old debt.

The most widely available reverse mortgage product -- and the source of the largest cash advances -- is the Home Equity Conversion Mortgage (HECM), the only reverse mortgage program insured by the Federal Housing Administration (FHA). However, the FHA sets a ceiling on the amount that can be borrowed against a single-family house, which is determined on a county-by-county basis. High-end borrowers must look to the proprietary reverse mortgage market, which imposes no loan limits. The national limit on the amount a homeowner can borrow is $765,600. 

Reverse mortgages are not right for everyone. Consult with your attorney about whether a reverse mortgage fits into your long-term care planning.

Can We Take Out a Reverse Mortgage to Pay for Care While We Wait for Medicaid Approval?

I have received a question from a reader lately. My mom is 93 years old and living at home with 24-hour care. We applied for Medicaid and have spent down her funds. We are awaiting financial approval and an opening at the nursing home to place her. Can we take out a reverse mortage on the house to keep paying for her care at home until she can be admitted? And can we be reimbursed for repairs we need to make to the house to qualify for the mortgage?

Answer: Yes, and yes. You can take out a reverse mortage, and you can get reimbursed from the mortgage for money you advance for repairs to the house. However, be very careful to document every dollar that you spend. The best approach is to lend the money to your mother and have her sign a promissory note memorializing the loan and then have her pay for the repairs herself. Otherwise, the Medicaid agency might view your payments as a gift to your mother and her reimbursement of you to be a disqualifying transfer.

Finally, with respect to the remaining reverse mortgage funds available to be drawn on when your mother moves to the nursing home, confirm with your state Medicaid agency that they don’t view these as available to your mother. They shouldn’t, but with 51 separate Medicaid programs out there, it’s best to confirm that they don’t. 

The Dark Side of Reverse Mortgages for Seniors

“Also known as home equity conversion mortgages or HECMs, the most popular form of reverse mortgage allows eligible seniors age 62 and older to borrow up to 60% of their equity in their primary residences to pay for any expenses.”

It sounds great, even if you know that the reverse mortgages are known to be a little on the pricey side. However, unexpected circumstances can make this last-chance-to-save-your-retirement strategy backfire in a big way. Just ask Evelyn Boice, who is still wearing the same clothing that she brought to babysit her grandchildren last February. The Union Leader shares her story in the article “Silver Linings: Reverse mortgages for seniors–Lifestyle Maintenance or money pit?”

It seems that a flood at Evelyn’s retirement home caused by burst pipes led to a financial disaster. She’s 83 and didn’t expect to spend her last years living in an apartment attached to her daughter’s home. She’s got a chair, a TV, a bed and a kitchen stool. Everything she owned was destroyed in the flood.

She does have a lot of notebooks—stacks of confusing and incomplete financial statements loaded with indecipherable charges, including a $35 charge every time she calls the reverse mortgage company for help. She’s got threatening letters about being in default, while she waits for the mortgage lender to release an insurance check for $48,651 that she would use to salvage what’s left of her home.

When she called the insurance company, she heard an awful comment from someone at the office: “Why doesn’t she just hurry up and die?”

Boice took out a reverse mortgage in 2007 and used $50,000 of a $200,000 loan to make emergency repairs after Hurricane Wilma struck her home, blowing out windows and doors. However, the danger comes, when homeowners don’t have enough money to live on and maintain their homes, make essential repairs or pay for insurance and property taxes. That’s non-negotiable with a reverse mortgage. Any kind of default can lead to a cascade of new expenses for appraisals, property inspections and legal work to protect the lender. The lender has all the power and all the fine print.

Her case is an extreme example of what can go wrong. In 12 years, an unbelievable amount of paperwork has accumulated. One document shows that she owes $265,000, a number that keeps increasing. The monthly interest charges range from $100 to more than $1,000, and lump sums of more than $2,500, reflecting property taxes.

Boice is getting some help from the Claremont office of New Hampshire Legal Assistance. They are helping her work through the issue, but it may only come in the form of tax deferment or reductions.

Before taking out a reverse mortgage, seniors should look at all available options. They should also have an attorney review the contract from the reverse mortgage company. One small mistake can end up costing hundreds of thousands of dollars.

Reference: Union Leader (Feb. 2, 2019) “Silver Linings: Reverse mortgages for seniors–Lifestyle Maintenance or money pit?”

Waited Too Long to Save for Retirement? Here are Six Things You Can Still Do

“If everyone saved a decent chunk of their income throughout their career and never dipped into savings to deal with emergencies, all could enjoy a cushy retirement.”

In a perfect world, we’d all have saved enough by age 60 to relax about money and start planning our golden years.  However, in reality, says Bankrate.com, most people find themselves rapidly approaching retirement with not nearly enough savings. Some key suggestions are covered in “6 last-minute retirement planning strategies.” No, they’re not as good as a lifetime of steady savings, but they’re better than nothing.

Start saving like crazy. Reduce all discretionary spending and put anything and everything you can, into your retirement accounts. If you’re over 50, you can add a catch-up contribution to your annual IRA limit of $6,5000—giving you a maximum contribution in 2018 of $24,500. If you exceed the limit, put the money into a savings account. Just be sure to save it.

Consider a shift to your investment portfolio. If your investments are all in low interest rate CDs or bonds, you may want to make a change.  This could involve modest moves up on the risk scale that could make a difference. Make moderate changes. Big shifts are never a good idea.

Keep working.  While you are able to work, you aren’t drawing money from your retirement accounts, so investments have more time to grow. Working longer also gives you more time to add to those funds. Delaying retirement also increases the income you’ll get from Social Security.

Change your retirement budget. If you thought you were going to spend your retirement living high, rethink that. If you don’t have enough saved, you will likely have to cut expenses. If you have, for example, $400,000 saved for retirement and are used to spending $50,000 annually, your savings won’t last much past eight years (ignoring any investment gains).

If you cut your spending in half, your savings will last 16 years, and if your investments do any growing, so will your overall portfolio. If you can’t make that much of a cut, consider part-time employment. Many retirees today are using this time to pursue careers they once considered a hobby, or simply taking lower-paying, less stressful jobs to round out their household budgets.

Sell your home. If you have a lot of equity in your home, consider selling your home and using the proceeds to add to your retirement account. Rent or buy a smaller home or move to an area where home costs are lower. You may also consider a reverse mortgage, which lets you continue to live in the house, while receiving monthly income.

Be sure to protect your retirement accounts with an estate plan that includes a trust, a will,  a power of attorney and an healthcare directive. An estate plan is important for all retirees, whether their assets are large or small.   A good estate plan can help you qualify for long-term care benefits should you need them one day.  Consider it an investment in your future.

Resource: Bankrate.com: (July 25, 2018) “6 last-minute retirement planning strategies”